[Federal Register Volume 75, Number 202 (Wednesday, October 20, 2010)]
[Notices]
[Pages 64728-64729]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-26433]
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FARM CREDIT ADMINISTRATION
[BM-14-OCT-10-02]
Cooperative Operating Philosophy--Serving the Members of Farm
Credit System Institutions
AGENCY: Farm Credit Administration.
ACTION: Policy statement.
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SUMMARY: The Farm Credit Administration (FCA) Board recently adopted a
policy statement that reaffirms the FCA's support of members'
participation in their Farm Credit System (System) institution and
identifies three business practices for operating the cooperative with
a focus on serving the members. Those practices are engaging members as
owners, communicating with members, and providing value-added benefits
to members.
DATES: Effective Date: October 14, 2010.
FOR FURTHER INFORMATION CONTACT: Deborah Wilson, Senior Accountant,
Office of Regulatory Policy, Farm Credit Administration, McLean, VA
22102-5090, (703) 883-4498, TTY (703) 883-4434, or Laura McFarland,
Senior Counsel, Office of General Counsel, Farm Credit Administration,
McLean, VA 22102-5090, (703) 883-4020, TTY (703) 883-4020.
SUPPLEMENTARY INFORMATION: The FCA Board adopted a policy statement
reaffirming its support for the cooperative structure and operation of
System institutions. The policy statement, in its entirety, follows:
The FCA Board Hereby Adopts the Following Policy Statement:
Cooperative Operating Philosophy--Serving the Member of Farm Credit
System Institutions FCA-PS-80 [BM-14-OCT-10-02]
Effective Date: 14-OCT-10.
Effect on Previous Actions: None.
Source of Authority: Preamble and section 1.1 of the Farm Credit
Act of 1971, as amended.
Cooperative Commitment
The Farm Credit Administration (FCA) is committed to the
cooperative structure under which Farm Credit System (System)
institutions are required to operate.\1\ The FCA emphasizes cooperative
principles by advancing regulatory proposals that encourage farmer,
rancher, and cooperative borrowers to participate in the management,
control, and ownership of their institutions.\2\ The FCA also
emphasizes cooperative principles in the examination function and
Financial Institution Rating System (FIRS) used to categorize the
safety and soundness of System institutions.\3\
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\1\ See Sec. 615.5230, ``Implementation of cooperative
principles.''
\2\ See FCA Policy Statement ``Regulatory Philosophy'' (FCA-PS-
59), dated June 8, 2005.
\3\ Under FIRS, each institution is assigned composite and
component ratings based on an evaluation of the adequacy of Capital,
Assets, Management, Earnings, Liquidity, and Sensitivity to market
risk (commonly referred to as ``CAMELS''). Composite and component
ratings are assigned based on a 1 to 5 numerical scale, with 1 being
the highest rating indicating the strongest level of performance and
risk management practices and the least degree of supervisory
concern. Within the Management component, FCA qualitatively rates
the use of cooperative principles in the conduct of business
activities. Please visit www.fca.gov for further information on
FIRS.
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The FCA supports cooperative values that encourage member
participation in System institutions. Cooperatives are, by definition,
entities with a ``member focus.'' They are owned and controlled by
their members, and the members benefit from doing business with their
cooperatives. Cooperative entities that focus on serving and fulfilling
the needs of their members often realize greater participation in their
institutions. While System institutions have strong reputations as
effective cooperatives, they should build on this tradition through a
cooperative business culture that goes beyond that required by statute
and regulation.
History
The System is a Government-sponsored enterprise of cooperative
institutions owned and controlled by their member-borrowers.\4\ Prior
to establishment of the System, a political consensus had been forming
in Congress on a need for an improved system of credit delivery to
agriculture. When Congress established the System in 1916,\5\ it
determined that the cooperative structure was the best model for
furnishing sound, adequate and constructive credit and closely related
services to rural areas.\6\ Subsequent Farm Credit legislation,
including the Farm Credit Act of 1971, as amended, has reaffirmed the
cooperative nature of the System.
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\4\ The Preamble and section 1.1 of the Farm Credit Act of 1971,
as amended (Act), Public Law 92-181, 85 Stat. 583.
\5\ The Federal Farm Loan Act, Public Law 64-158, 39 Stat. 360.
\6\ The cooperative structure of the System was viewed by
Congress as providing greater safeguards than other structures under
consideration at the time.
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Policy on Implementing a Cooperative Operating Philosophy--Serving the
Members
The System, through its cooperative structure, makes competitive
credit available to creditworthy farmers, ranchers, producers and
harvesters of aquatic products, and their cooperatives. The FCA
believes the following three core cooperative principles are the
foundation of the System's structure: \7\
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\7\ The International Co-operative Alliance (ICA), an
independent, non-governmental association, has issued a statement on
cooperative identity in which they espouse seven principles as
guidelines for cooperatives to put their values into practice. Those
seven principles are voluntary and open membership, democratic
member control, member economic participation, autonomy and
independence, training and information, cooperation among
cooperatives, and concern for community. The principles can be found
on the ICA Web site, http://www.ica.coop.
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(1) The cooperative is owned by its members.\8\
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\8\ Under 4.3A of the Act, borrower-members of a System
institution acquire voting stock at loan origination and hold
allocated equities generated by patronage distributions from net
earnings. Borrower-members' voting stock and allocated equities are
at-risk investments.
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(2) The cooperative is controlled by its members.
(3) The members benefit from doing business with, and participating
in, the management, control, and ownership of their institution.
While business practices may change over time, these underlying
cooperative
[[Page 64729]]
principles have sufficient flexibility to ensure changes in best
practices remain member focused. System institutions should apply
cooperative business practices in a manner that best serves their
members and meets their mission as Government-sponsored enterprises,
while continuing to operate in a safe and sound manner, by
(1) Engaging members as owners,
(2) Communicating with members, and
(3) Providing value-added benefits to members.
Serving the Members of Farm Credit System Institutions
Operating in a cooperative manner requires the boards of directors
and management to engage, communicate, and provide value-added benefits
to members. System institutions should proactively identify
opportunities to reach out to member-borrowers beyond the lending and
related services relationship.\9\
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\9\ At a later date, the FCA will issue an Informational
Memorandum to share its perspective on cooperative business
practices that System institutions could use to reach out to their
member-borrowers.
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Many System institutions have been innovative and diligent in
maintaining a cooperative philosophy in their business operations. The
FCA encourages System institutions to continue and further their
efforts to uphold a cooperative business culture. In addition, the FCA
Board challenges the board and management of each System institution to
periodically review and update their cooperative philosophies and
practices and ensure that they maintain the focus to serve the members.
Dated this 14th day of October 2010.
By Order of the Board.
Roland E. Smith,
Secretary, Farm Credit Administration Board.
[FR Doc. 2010-26433 Filed 10-19-10; 8:45 am]
BILLING CODE 6705-01-P